Analysts and Market Players Say Sharper Price Fall Awaits Nickel

American multinational financial services firm Morgan Stanley slashed its last forecast for nickel on Tuesday due to cost deflation and weaker global demand from stainless steel producers. Its decision to alter prospect for nickel came after Goldman Sachs slashed its price for select base metals for 2015 this week.

“Fundamentals of this small, high-value metal market are subdued for now: global inventories are high/rising (+25 percent of global supply) — regional premia are soft, stainless steel prices are in decline,” an official at Morgan Stanley stated.

Of all base metal commodities, nickel was the hardest hit as 70 percent of refined metal went into the stainless steel sector where producers often sell stocks for a cheaper price on signs of worsening economic growth. Ira Iosebashvili of Barron’s Asia believed that the base metal will continue to fall in prices in months to come as the global market remains flooded with metal and as consumption from former voracious consumers like Japan and China declines.

Nonetheless, Citigroup analyst David Wilson suggested that the price slump could not be a permanent scenario for nickel this year if demand picks up in the succeeding quarters. “We now see little prospect of a sustainable nickel price or stainless stocking upturn ahead of the July/August holiday period. All grist to the bullish mill, you might think. Particularly since LME stock levels have been hard-wired into funds’ positioning in nickel,” he said.

Some analysts also thought that lifting the Indonesian ore ban is not a good idea as it could result to sharper fall in prices. Given the current weak global demand conditions for nickel, this could change the demand-supply dynamics in the market for nickel. Consumers might go back to Indonesian producers again and abandon current supply partners that offer lower-grade ores.

However, the continuity of the ban will benefit new producers in the segment such as Amur Minerals Corporation (LSE:AMC). These companies could sell their products to stainless steel companies that couldn’t obtain decent supplies from top producers. Since the implementation of the ban, a large amount of high-grade nickel ore products from the Philippines (currently the largest nickel producer in the world) have been exclusively sold to China and Japan.

International banks expect nickel demand to grow at 1 percent this year, a dismal growth rate that could postpone a potential price hike in the third quarter. According to Citigroup, weak nickel prices have effectively removed any incentive for stainless steel consumers to rebuild inventories. LME nickel traded at US$12,625 [$16,480] a tonne on Tuesday.

Contact the writer: a.lu@ibtimes.com.au